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Article: November 2018: Construction Litigation Update

Business Litigation Reports

Excluding Liability for Concurrent Delay in English Law Construction Contracts – Recent Clarity from the Court of Appeal. Delays are almost inevitable on construction projects of any complexity. In turn, delay claims can form the most complex (and costly) aspect of any construction dispute. Against that background, parties routinely take steps to manage that risk when contracting – with examples frequently including liquidated damages provisions, or clauses addressing when and how extensions to the time for completion can be sought.

The case of North Midland Building Limited v. Cyden Homes Limited concerns a contractual clause aimed at addressing delay risk in circumstances where a period of delay is arguably attributable both to the contractor, as well as events for which the project owner carries the risk, i.e. concurrent delay. The clause in question provided that in such circumstances the contractor bore all risk, with no entitlement to an extension to the time for completion as a result.

In its decision in the case of July 30, 2018 ([2018] EWCA Civ 1744), the English Court of Appeal affirmed the decision of the High Court supporting the clause, in rejecting a further challenge to the enforceability of that form of risk-shifting, and providing a further reminder of the willingness of English courts to uphold the parties’ agreement. The decision is also notable given the guidance it provides with respect to the English law concept of the “prevention principle,” and the ability to contract out of, or around it.

The Facts of the Case. North Midland (the appellant) entered into an agreement with Cyden (the respondent) under which North Midland contracted to design and build a substantial house and equestrian center in Lincolnshire (the “Contract”). The appeal focused on one clause of the Contract in particular – clause 2.25.1.3(b) – which provided that with respect to any delays on the project, and a request from North Midland for an extension of time, any delay “concurrent with another delay for which the contractor is responsible shall not be taken into account.

The works were delayed, and North Midland sought an extension to the time for completion – giving rise to a dispute regarding the amount of any extension to be made. North Midland’s extension was rejected by Cyden, on the basis that while the delay could partly be attributed to adverse weather conditions (for which Cyden bore the

contractual risk), the delay was concurrent with other delays for which North Midland was responsible.

The agreed meaning of clause 2.25.1.3(b) was that if delays arose on the project and these were partly caused by Cyden, this would not reduce North Midland’s liability for the period of delay. The question to be decided by the court was the extent to which the clause was enforceable.

The Prevention Principle. In circumstances where work on a project is delayed, contractors frequently seek to rely on the prevention principle when arguing that the delay, or a portion of the delay, stems from acts taken, or not taken, by the project owner. In accordance with the principle, parties are taken to have agreed that they will not do anything to prevent the other party from performing a contract, or that would delay the other party in the performance of its obligations.

North Midland’s argument was that clause 2.25.1.3(b), which effectively excuses the project owner from liability for its own delays, where those delays are concurrent with contractor-caused delays, was inconsistent with the prevention principle, and should therefore not be upheld. This was framed as what the Court of Appeal described as the “bold proposition” that the prevention principle “was a matter of legal policy,” and which could “rescue the appellant from the clause to which it had freely agreed” – seeking to draw analogies with the English law position on penalties.

This argument was not accepted by the court, which found no authority for the proposition that the principle is “an overriding rule of public or legal policy.” The court had already stated its view that the principle operates as an implied contractual term. However 2.25.1.3(b) was an expressly agreed term. It is trite law that no term can be implied into a contract if it contradicts express terms.

The court was also unsatisfied with connections being drawn between the principle and concurrent delay, there being no mention of concurrent delay in the cases from which the principle derives. Moreover, the court considered that parties are able to contract “out of some or all of the effects of the prevention principle.” Accordingly, the court upheld the clause.

Implications of the Decision. The decision can be taken as confirmation that parties are entitled freely to allocate the risk of concurrent delay in English law governed construction contracts.

The contract out of which the dispute between North Midland and Cyden had arisen was based on the JCT Design and Build 2005 Standard Terms and Conditions. Clause 2.25.1.3(b), however, was one of a number of bespoke amendments. In view of the Court of Appeal’s support for the clause, it is likely that project owners/ employers will more routinely (and confidently) seek to include similar provisions in their contracts going forward (to the extent the contractor is willing to agree to them).

As the case is arguably limited to a narrow set of facts, however, and given that a number of points concerning both concurrent delay and the prevention principle did not require a final view from the court in its decision, we do not expect this to be the last time analogous issues are litigated.